Vonage shares slide on first day

Stock down almost 13 percent after first day of trading, indicating investor wariness.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
2 min read
Vonage's Internet phone service wasn't the only thing selling at a discount on Wednesday. So was its stock.

Shares of the new public company slid almost 13 percent from its initial offering price after the company's stock completed its first day of trading on the New York Stock Exchange. The dip could indicate that investors are wary of the company's future prospects.

Vonage shares had dropped 12.6 percent, to $14.85, at the closing bell. The company's initial public offering was priced on Tuesday at $17 a share, which resulted in $531 million for the company.

Many on Wall Street have kept a close eye on the Vonage IPO to see how investors would receive it. And so far it looks as if investors could be skeptical about Vonage's future.

The company, which sells a service that turns broadband connections into phone lines, has never been profitable. And it has admitted that it may never be profitable, as it continues to rack up debt by increasing its marketing efforts.

The company has reported losses in every quarter since it first started in 2001. As of March 31 this year, the company had a deficit that reached $455 million, according to a filing with the Securities and Exchange Commission.

In addition to competing against big phone companies such as Verizon Communications and AT&T, Vonage is increasingly facing competition from other Internet telephony players. America Online, eBay's Skype, Google and Yahoo all offer free Internet telephony services that could compete with Vonage. But these services differ slightly from Vonage's because they are not marketed as regular phone replacements.

The biggest threat to Vonage appears to be the cable companies, which are vigorously marketing their telephony services as replacements to traditional telephone lines. Cable providers such as Comcast and Time Warner have seen tremendous growth in their customer base as they bundle their voice service with high-speed Internet access and TV service.

Time Warner added 270,000 digital phone subscribers in the first quarter of 2006, its biggest gain ever. And Comcast, the largest cable provider in the U.S., added 211,000 new phone customers during the quarter, more than it had signed up during all of 2005.